In this digital age, buying and selling currency is easier than ever. Just about anyone in any country can open an online Forex trading account and at the click of a button, you can buy or sell. There are two ways to trade foreign currency; one is with the Foreign Exchange Market (Forex) and the other is with binary options.
What is Spot Forex Market?
Trading on the Spot Forex market is the process of buying one currency while selling another simultaneously at a specific price. Forex trading takes advantage of the fluctuation in currency prices and you can stay in a trade without a time limit. With over 5.3 trillion US dollars turned over in excess per day, Forex is the world’s largest and most liquid market.
What are Binary Options
Binary options are an alternative way to play with Foreign currency. The buyer of a Binary Option will make a forecast as to where the price of the currency will go at the time of purchase, either up or down. If the forecast turns out to be correct, they will make a profit, but if they turn out to be wrong they risk only the cost of the binary option. The catch is that the cost of the binary option may be very high and if you are not careful, you can lose a large amount of money very quickly.
Comparing Spot Forex Trading To Binary Options
The Spot Forex Market |
Forex Binary Options |
| Available online 24 hours a day from Sunday-Friday (GMT), | Available online 24 hours a day from Sunday – Friday (GMT), |
| Most brokers allow you to open an account with as little as $100. | Most brokers allow you to open an account with as little as $100. |
| You can make or lose money depending on which direction the currency moves. | You can make or lose money depending on which direction the currency moves. |
| You can trade short term or long term. | You can trade short term only. |
| Before entering a trade, you can set your risk and profit level with a Stop Loss* or Take Profit*. You can make adjustments to these prices as the trade progresses. |
Before entering the trade, you know exactly your risk and profit potential. |
| Since there is no time limit,you can remain active in a Forex trade for as long as you want. | There is a time limit, and when the option expires, you lose or gain the preset amount. |
| You can customize your potential risk/reward to make your potential reward higher than your risk. For example, you can place a $200 Stop Loss* and a $600 Take Profit*. The trade stays open until one of the prices is reached. |
Your risk is almost always more than your reward. Binary options typically pay out 60% to 80%, but can lose 100% of the money you placed on the trade. |
| You can actually lose more trades than you win, but since you can customize your reward relative to risk you could end up still making a profit. | You need over 50% winning percentage on trades to break even and over 55% winning trades to make a profit. |
| During times of low volatility or price action, Forex traders may be sidelined because of lack of liquidity and market direction. |
Binary options traders can still participate during times of low volatility and the payout for winning trades will still be the same as when the price movement is more active. |
| The price may go for or against you, but if you close a trade with a 1 pip loss, it is not a big deal. |
At the time the trade expires, even if the price is just 1 pip above or below your prediction, you could lose the entire amount of your risk. |
Will I Trade Forex or Binary Options?
Although it can be expensive to purchase a Forex binary option, they are attractive because the maximum potential loss is limited and known in advance. On the other hand, many traders prefer the spot Forex market for the flexibility of trading on any time frame they want, opening and closing positions at any time and at any price. Our Forex Signals are available for any Forex trader participating on the spot Forex market, anywhere in the world.
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